Morgan Stanley Is Concerned about the Markets in 2019


Jan. 15 2019, Updated 9:00 a.m. ET

Morgan Stanley-One of most bearish S&P 500 target

Morgan Stanley’s (MS) chief equity strategist, Michael Wilson, is the most bearish on Wall Street regarding the projection for the S&P 500’s (SPY) target for the end of 2019. He thinks that stocks (VTI) (QQQ) will continue to struggle in 2019. Wilson kept his target for 2019 unchanged from 2018, which doesn’t imply any growth. According to CNBC, Wilson said he “sees more of the same” stagnant performance from major stock indexes in 2019.

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Rolling bear market

Wilson said, “After a roller coaster ride in 2018 driven by tighter financial conditions and peaking growth, we expect another range-bound year driven by disappointing earnings and a Fed that pauses.” Wilson has repeatedly characterized this market as a “rolling bear market.” He expects the S&P 500 to trade within a range of 2,400–3,000.

Earnings deceleration

Investors have been concerned about the coming earnings cliff. For most of 2018, US equities have outperformed the rest of the world. However, the momentum seems to be stalling. According to FactSet, the earnings growth is expected to cool off from 20.1% in 2018 to 6.9% in 2019.

The S&P 500’s (SPY) net profit margin reached 12.0% in the third quarter. The margin expanded by 1.6 percentage points year-over-year and marked a record since FactSet started recording the data in 2008.

As pressure increases with higher raw material, energy, and labor costs and we see the impact from tariffs, the margins are expected to come off. The sugar high from the tax impact could wear off going into 2019. Several companies including Caterpillar (CAT), Ford (F), and 3M (MMM) have cited trade tariffs and China’s slowdown as headwinds for 2019 in addition to margin pressure in 2018.


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